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Sunday, March 23, 2003


Peter U. and Mary M. Boehme won the Colorado lottery, which was to be paid over the course of the 25 years. After a few years of borrowing money secured on the lottery payments, they sold the right to 12 years worth of payments for a lump sum. They had used most of the loans to construct and make improvements on their home. They used most of the lump sum to repay the loans.

Tax Court held that the right to receive lottery payments is not a capital asset. Therefore, the proceeds from selling that right are not capital gains, but are instead ordinary income. They explained why last year in Davis v. Commissioner, and they really aren�t inclined to go through all of that again.

Despite most of the loans being used to build or improve their home, none of the interest on the loans was deductible as qualified residence interest because the loans were not secured by mortgages on the residence. Nor was it investment interest or interest properly allocable to a trade or business, as most of it went into their home, and the rest was unaccounted for.

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